BMO Covered Call Canadian Banks ETF T.ZWB

Alternate Symbol(s): T.ZWB.U | BMDLF

The ETF seeks to provide exposure to the performance of a portfolio of Canadian banks to generate income and to provide long-term capital appreciation while mitigating downside risk through the use of covered call options. To achieve investment objective the ETF will primarily invest in and hold the securities of Canadian banks, ETFs, or a combination of these. Depending on market volatility and other factors, the ETF will write covered call options on these securities. Under such call options, the ETF will sell to the buyer of the option, for a premium, either a right to buy the security from the ETF at an exercise price or, if the option is cash settled, the right to a payment from the ETF equal to the difference between the value of the security and the exercise price.

TSX:ZWB - Post by User

BMO Covered Call Canadian Banks ETF

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Comment by Banner403on May 06, 2011 12:03pm

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Post# 18540566

RE: Does this really

The downside risk is if the banks are:
if they (bank stocks) perform very strongly, the call options will be exercised. The result will be having to buy back the stock and result in a slightly lower payout - more than half is income from call options. The downside risk is less than that of owning a regular banks etf. In neutral, normal bull (slightly upward) and bear markets the covered calls will be maximized. In essence, you're not making as much as you normally would if the underlying equities skyrocket. If the banks tank, you'll still get roughly 9.5% covered call income (instead of the 4% or so of the regular banks dividend) but the equities will still go down. Hope this helps.

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